Advances in computer technology and increasing information about credit risk have improved credit modelling techniques and led to automated underwriting and credit-scoring systems.  Advanced credit-scoring systems are essential in automating underwriting procedures and for lowering operating and financing costs.  Advanced market scorecards rely heavily on the electronic services of credit bureaus.

Automated credit-scoring systems are either generic or custom.  A generic credit scoring system, such as the FICO model used by the vast majority of US grantors of credit, makes use of data from credit bureaus together with customer data to calculate a score to predict the likelihood of default on a new account.  A custom credit scoring system typically utilizes both credit bureau data and other data from a credit application and is developed by the creditor (lender, lessor) based on the historical performance of its own credit portfolio.

FICO Score-Interest – Example
FICO Score Interest Rate Monthly
Payment		 Total Interest
Paid
    ≥ 760 3485%   $896 $112,710
700-759 3706%   $921 $131,648
680-699 3883%   $941 $138,900
660-679 4096%    $966 $147,736
640-659 4525% $1,016 $165,884
620-639 5069% $1,082 $189,553

Many lessors use credit-scoring systems for automated underwriting.  Automated underwriting expedites credit approval by allowing the automated acceptance or rejection of a large number of applications in accordance with the underwriting guidelines.  Use of automated credit-scoring systems in credit and lease underwriting improves the ability to model and predict asset portfolio performance and allows for the underwriting of a greater volume of loans and leases for asset-backed securities.

Credit Application ↓
Credit Bureau Information → Application Processing → Business Decision
Consumer Bureau Information ↑

 

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